Leasing as a Foundation for UK Construction Sector Recovery: Navigating Challenges and Seizing Opportunities

The UK construction sector is facing a perfect financial storm, with more construction firms collapsing in March 2025 than in any other month since July last year. According to the Insolvency Service, a total of 377 construction businesses became insolvent, up from 368 in February. The vast majority of these were specialist subcontractors, including 87 electrical and plumbing firms and 71 building completion and finishing contractors.

These figures come against a broader trend of financial stress across the UK economy. Overall, there were 2,238 company insolvencies in England and Wales in May 2025, up 8% from April and 15% from the same month a year ago. The construction sector was the worst affected, accounting for 17% of all insolvencies over the past 12 months.

The reasons for this financial crisis are multifaceted. Rising material costs are a major drag on profitability for construction SMEs, with 72% citing this as a major issue. Additionally, nearly a third (29%) say they don’t have sufficient cashflow to operate effectively, much higher than in other sectors such as transport (6%) or wholesale (12%).

The situation is further compounded by complex contracts and poor payment practices. Nearly half (48%) of SMEs find contracts difficult to understand, rising to 56% among the smallest firms (1–9 employees). Even more worryingly, 58% of the smallest firms feel they must accept terms as-is, for fear of losing business altogether. These firms often operate at the end of the payment chain, leaving them vulnerable to delayed payments, unfavourable terms, and bad debt, all of which exacerbate existing cashflow issues.

As costs and risks rise, construction SMEs are finding it increasingly difficult to secure external finance. BFS reports that 51% of firms say access to finance has worsened over the past six months, more than in any other sector. The most common reasons for seeking finance include investment in growth (39%) and covering day-to-day operations (32%), but for many, traditional routes to funding are drying up.

Despite these challenges, there are signs of resilience in equipment and plant finance, a key construction indicator. While plant and machinery finance fell 5% year-on-year in April 2025, it rose by 1% over the past three months, and remained up 1% over the full 12 months. These figures suggest that the April dip may reflect a seasonal slowdown or temporary pause, rather than a long-term contraction. For construction firms facing restricted access to traditional lending, leasing and asset finance offer a vital alternative, enabling investment in essential equipment without overstretching limited cash reserves.

The future of UK construction depends not only on ambitious targets but on ensuring that the smallest firms can build, compete, and survive. As BFS Group Managing Director Jonathan Andrew puts it: “The Government’s commitment to invest in the construction sector may well explain increasing optimism amongst business leaders, however it’s critical that small firms are not left on the sidelines ... Improving access to finance will be a critical lever to give SMEs the boost they need to invest, innovate and grow.”

While the UK construction sector may be feeling the strain right now, there is clear upside potential within it. There is recognition at the heart of government that infrastructure projects - large and small - are key to not just driving UK growth but securing the status of the UK on the world stage. What is essential is that, when the iron is hot, finance providers are at hand to ensure that the construction industry can strike to seize upon those growth opportunities.

In conclusion, while the UK construction sector is facing a challenging period with rising costs and financial pressures, there are signs of resilience and potential for growth if targeted support is provided to help SMEs weather the current storm. Leasing offers a vital alternative to traditional lending for construction firms facing restricted access to finance. The future of UK construction depends on ensuring that all firms can compete and survive in this rapidly changing industry.